Personal Wealth, Self-Employment, and Business Ownership

Bellon, Aymeric; Cookson, J. Anthony; Gilje, Erik P.; Heimer, Rawley Z.

doi:10.1093/rfs/hhab044

Review of Financial Studies 34 (8): 3935–3975

Personal Wealth, Self-Employment, and Business Ownership

Aymeric Bellon, J. Anthony Cookson, Erik P. Gilje, and Rawley Z. Heimer

Abstract. We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.

Keywords: entrepreneurship, liquidity constraints, business formation, self-employment, cash windfalls, shale royalties, personal wealth.

JEL codes: G39, G51, L26.

In brief

Does having more money make people more likely to start a business? Using mineral payments from Texas shale drilling to individuals across the United States, the paper finds that large cash windfalls raise business formation by 0.8 to 2.1 percentage points but do not make people more likely to become self-employed.

Windfalls do let people who are already self-employed stay self-employed longer, while having no effect on how long business owners keep their businesses. Liquidity constraints therefore matter differently depending on what motivates the would-be entrepreneur, which helps reconcile conflicting results in earlier research.

**Table 1.** Study at a glance
Panel A. Design
Question	Does personal wealth lead people to start businesses or become self-employed?
Setting	Mineral payments from Texas shale drilling to individuals across the United States
Method	Large cash windfalls as variation in personal wealth
Panel B. Reported effects
Business formation		+0.8 to 2.1 pp
Transitions to self-employment		No effect
Length of self-employment spells		Longer
Duration of business ownership		No effect

Summarized from the paper. See the paper for exact estimates and specifications.

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Published version, Review of Financial Studies
Working paper version, SSRN
DOI: 10.1093/rfs/hhab044

Bellon, Aymeric, J. Anthony Cookson, Erik P. Gilje, and Rawley Z. Heimer. 2021. “Personal Wealth, Self-Employment, and Business Ownership.” Review of Financial Studies 34 (8): 3935–3975. https://doi.org/10.1093/rfs/hhab044.

@article{heimer2021personal,
  author  = {Bellon, Aymeric and Cookson, J. Anthony and Gilje, Erik P. and Heimer, Rawley Z.},
  title   = {Personal Wealth, Self-Employment, and Business Ownership},
  journal = {Review of Financial Studies},
  volume  = {34},
  number  = {8},
  pages   = {3935--3975},
  year    = {2021},
  doi     = {10.1093/rfs/hhab044},
  url     = {https://academic.oup.com/rfs/article/34/8/3935/6218782}
}

Topics: Saving, retirement, and inheritance
Related papers: Shale Shocked: Cash Windfalls and Household Debt Repayment; YOLO: Mortality Beliefs and Household Finance Puzzles; Subjective Beliefs, Saving, and Spending for Retirement; Five Facts about Bequest Motives

In brief

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